Struggling to pay your bills or fix your roof? Or perhaps you’ve lost your job? That’s where secured loans come in handy.
Several types of loans exist, and each has different requirements. Mortgages, personal loans, student loans, and debt consolidation loans are just a few to mention. The problem is that you may not qualify for a loan of your choice. If you have bad credit or no credit history at all, you may find it difficult to get financing.
Luckily, even those with less-than-stellar credit may qualify for a secured loan. With this option, you’ll pledge with a personal asset, such as your home or car, as collateral.
Now the question is, when is the best time to get this kind of loan? Most importantly, how does it work? Let’s find out the answers!
How Secured Loans Work
Whether you need money to buy a computer, fix your old one, or pay hospital bills, you may consider applying for a personal loan. This financing option is based on the borrower’s creditworthiness and, therefore, a less than perfect credit score can ruin your chances of getting the money you need.
Secured loans, on the other hand, are backed by collateral. Depending on what you own, you may use your vehicle title, motorcycle, boat, or other personal assets to obtain funds. However, if you’re unable to pay your debt, the lender can take permanent possession of these assets.
Borrows don’t need a perfect credit rating to obtain funding because the secured loan has a pledged asset. While it’s true that those with bad credit may pay higher interest rates, but at least, these loans can get the money you need in case of an emergency.
Plus, secured loans often carry lower interest than a personal loan.
The key is to act responsibly and borrow only as much as you need. Although you may use the funds for any purpose, it’s not a good idea to get a loan to pay for your vacation or buy the latest iPhone.
Best Time to Take Out a Secured Loan
Most Americans are drowning in debt, according to the Chamber of Commerce. But you don’t have to become one of them.
As mentioned earlier, secured loans are easier to obtain and have lower interest rates than personal loans. Therefore, it can be tempting to borrow more money than you need.
Generally, a secured loan works best in case of emergencies, such as when you’re dealing with car repairs or medical bills. For example, if you don’t have enough to pay the rent it makes sense to take out a loan. Otherwise, you risk being kicked out of your apartment.
Another situation where you may use secured loans is when you want to start a small business. In this case, you may need money to buy a new computer or rent office space.
It’s not uncommon for customers to take out secured loans to consolidate other debts. And it makes sense — after they settle the existing debts, they remain with one loan.
Is a Secured Loan Right for You?
As you see, there are situations when a secured loan looks like the best option for you. If you choose this route, you may get the money you need to start your own business, pay your bills, or deal with emergencies.
The primary advantage of secured loans is the low-interest rate as they are less risky for lenders compared to unsecured loans. Hence, these loans ideally create a win-win situation for both borrowers and lenders!